The Concept of Guanxi in China

There are numerous definitions of the term Guanxi. Guanxi simply means the mutual relationship between people often personal and involves obligations. Guanxi can also be said to be a connection built between two individuals with an aim of exchanging favors. Guanxi is entirely a relationship built between two parties that are patient and are after a long-term friendship that will last. A Guanxi relationship involves one party doing a favor for the other party and expecting a favor in return but at a later date. The favor that will later be returned may not necessarily be exact in quotation but be just a favor returned. Guanxi is like networking but meant for a long-term connection. A Guanxi relationship can also be put in a simpler phrase as “it’s not what you know, but who you know”. This (Guanxi) term is very well affiliated with the Western business circles since they believe in maintaining a good relationship with their business partners to advance their career and to enable them to close on important deals in the context of doing business together.

Although it is important to maintain good relations between business partners, a business can not entirely be run on Guanxi. Hence the need to maintain all the other aspects to survive in the business field.

Guanxi in Business

Guanxi, among other key aspects of running a business, plays an important role in the field of business. Companies maintain a Guanxi relationship to gain a kind of favor at a later date. One of the parties receives a favor today and later on is expected to reverse the favor. The favor may not exactly be the same regarding its nature, urgency or even monetary value but what is appreciated is that the party has returned a favor. This kind of relationship is very helpful since a company can gain favors in the nick of time and later repay back.

In China, Guanxi is very important in the business industry. In the Chinese culture, maintaining a face or reputation in your network is very important. Guanxi is used by Chinese Nationals as a means to build trust among them. China’s governance is a bit dictatorial; the Chinese people find Guanxi as the trust that the rule of law cannot provide them with. In China, businesses develop Guanxi among themselves in an aim to avoid the justice system that can be easily influenced in a case. They (businesses) develop trusted relationships amongst them and observe a certain code of conduct.

Chinese Business Relationships = Guanxi in Business

In the Chinese business setup, business partners do not only maintain a “business only” relationship; they create a friendly environment then later seal business deals. The friend relationship can be having dinner with potential clients and business partners.

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Also, Guanxi can be created between a business and the government. This kind of Guanxi can be a great help to foreign companies intending to establish and trade in a country. Say in an instance, a good Guanxi with say the Chinese government can open up the potential business being granted business permits in the country. This has helped several companies establish themselves in China. An example is Kentucky Fried Chicken that obtained a building permit in China in 1987 due to its good Guanxi with the Chinese government of that time. Thus maintaining a Guanxi with the Chinese government is important for multinational companies that are seeking to invest and trade on the Chinese soils.

The Benefits of Guanxi in Business

In China, a good Guanxi earns a company ease to access the scarce resources. Professionals and other essential resources can be hard to find in China, but a well-reputed company can get such services and resources from their Guanxi with whom they share common interests and a good relation. Power and building resources are under the authorities control and hence need of being good reputed to gain some of such items.

A Guanxi network builds a corporate reputation, broader market and motivated staff. However, as much as a Guanxi relationship is perceived to be a good relationship that is meant to benefit both parties, at times it is not well intended. Some companies are known to spend heftily on Guanxi gift to a party that is intended to influence a favor in return. This amounts to bribery and can end up in a court of law if proved that it is intended to influence the reputation of the giving party. This tarnishes the real meaning of the term Guanxi. If a company is found guilty of bribery, in China it risks revocation of operating license(s) and eventual closure. Hefty penalties and fines may also apply. The company name is widely tarnished, and this leads to low customer turn up since no individual wants to be associated with a corrupt company that offers bribes to influence its status.

Business Etiquette in China is Centered on a Respectful Relationship

The Chinese people perceive a company that is merging and blending with them as a company that is respecting them and that the company is out to establish a long-term relationship with them if only the company hires Chinese locals, welcome customers warmly and the company is indulging in the community activities. A foreign business finds it important to understand the concept of the Chinese people. Such Chinese concepts are giving a gift and motivating employees with work leaves, duty offs and remuneration increments. These aspects give a company the insight of the Chinese people that enables the companies to blend in well with the locals and thus increase communication efficiency between it and its employees.

The Chinese ineffective legal system forces companies to seek an alternate means to find trust and rise above the ranks of a business cycle. The system takes too long to settle legal business battles and at times can be manipulated to give a favorable resolution.

Chinese Relationships First, Business Second

Before doing business with the Chinese business persons, Chinese business partners will want to know you better first before they cooperate to do any deal. Guanxi is not necessarily easy to develop and maintain.

A company, especially a foreign company, will be required to employ experienced native Chinese personnel(s) whom can spearhead Guanxi talks and maintain the circle. Also employing a Chinese workforce earns a company reputation that it is merging with the culture of the Chinese people. The employee assigned the work of creating Guanxi relations, should regularly meet current customers, potential customers, and government agencies to talk and get to mingle more. This is in the best interest of the company since the parties exchange ideas, favor and gifts meant to aid in the company’s grow and its relation with the said parties

However simple or complex it is to create a Guanxi, the relationship based on Guanxi can fade if a party involved is questionable on its integrity and trustworthiness. Guanxi relationships are not entirely cash based although at times they are. This all depends on the partner and the intent of the relation. Guanxi relationship revolves around the element of trust. Many businesses in China are based on personal and mutual trust. In China, a business’ affiliation matters a lot. Being in good talks with certain people, company or authorities eases a company’s frustration, risks, and disappointment in the long run doing business. The barriers and set-ups are minimal for a successful business that has a good working Guanxi network.

Guanxi Relationships Take Time

A working Guanxi relationship in China can take time and money but once well affiliated; business becomes easy and flowing. The time and money spent on creating a Guanxi relation are worth an investment in regards to the favors the business gains in its operations.

A Guanxi relationship is not entirely between companies but can also be down to the individual levels.

The relationship goes way beyond just before sales to an ongoing process even after the deal is done and the favor returned. This ensures the smooth running of business with the Chinese. The Chinese people tend to do business with people they are well acquitted with first.

A working Guanxi can be achieved through proper understanding and application of Guanxi, developing it through personal efforts and establishing a good Guanxi by identifying and satisfying the other party’s greatest needs.

As analyzed above, Guanxi relationship is of great help to the companies working in China since they cannot survive without connections and affiliations. Guanxi is created between any parties that a company needs to partner with to sail through business. These parties include employees, the community, government authorities among others. These parties are given incentives or even support currently and later on are expected to return a favor back. To successfully create one such relation, a company has to sacrifice and invest in time and money. Later on, the company will reap from this investment regarding incentives and favors. Doing business in China has its ups and downs and the only solution is the connectivity and Guanxi network a company has. A Guanxi system should be good and work. Otherwise, it is deemed to have failed. A Guanxi network is important to a company since it paints the face value of a company. This reputation either earns a company loyal increasing customers or deters potential clients. A good and working Guanxi relationship is established through understanding and applying it to a partner by satisfying their greatest need. Also, Guanxi relations can be compromised if one of the parties is of questionable integrity.

Relationship Development Takes Time

Doing business in China may not be a walk in the park but with good guidance and Guanxi, a company creates a good image hence attracts potential clients and business partners. The Chinese deem a business hospitable by what they offer to them when they are conducting business. The Chinese often prefer to get to understand you first before they can commit themselves in any way to conduct any form of business or even sign the contract papers. This is often done while both parties enjoy a dinner, or are sharing coffee. In the Chinese culture, gifts mean a lot to potential partners and clients. At times, though, Guanxi is often mistaken as bribe especially if offered in the form of cash. It is important to note that it is not necessary to offer cash unless it is the only option. Guanxi takes many forms like favors and doing a job now not meant to be paid but later the act is reciprocated.

Guanxi is an old form of doing business in China and has proven to be a success. Guanxi has withstood the test of time and has proven reliable. Guanxi has not only proven to be effective only in the business world but also in our day-to-day social activities. Treating a potential client with goodies and favors creates an impression in them that the company is out to meet the need of its customers. This is a very important image that a company will always do all within its means to create it. A good image sells the company by word of mouth that clients talk about to their friend and fellow business partners. With thus, the business advertising cycle goes on and its customer base increases due to the services they offer to their current client and potential customers.

Running a successful business in China may be tough but with a motivated workforce and a well networked Guanxi system will ultimately propel a business to the desired level.

Be Careful…

For those who take advantage of such a system, the law is always on this land. Once implicated of being corrupt, customers avoid the company and avoid in any way to be implicated as a partner. It takes ages to create a good relation with another entity but takes a fraction of a second to break it.

According to studies conducted on Chinese people, they do not take advantage of those they have Guanxi relations with. This can be echoed as being true since if they exploit a trustee party, they will lose reputation in their network.

I would challenge the business world to emulate the Chinese people in the way they do business and how they treat their clients with whom they share a common interest.

CEO and Co-Founder of LaowaiCareer. Originally from Belarus, Yuri has been living in Beijing for the past ten years where he has turned his passion for helping foreigners into a successful business. He enjoys football and once had a pet pig when Beijing was less of a modern city than it is today.

A Message from Yuri Khlystov

As CEO of LaowaiCareer job board, Yuri has worked for the past seven years with a talented team to establish partnerships with over 2,000 organizations that offer positions to ambitious people ready for a challenge.